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US, EU ready to get tough on Iran

The European Union and the United States will impose further sanctions on Iran if it fails to suspend sensitive nuclear activities. The crackdown would include denying Iranian banks access to the world's financial system.

The European Union and the United States will warn Iran on Tuesday they are ready to go beyond agreed U.N. sanctions if it shuns demands to suspend sensitive nuclear work, according to a draft summit communique.

The draft, obtained by Reuters ahead of an EU-U.S. summit in Slovenia on Tuesday, raises the possibility of a crackdown on Iranian banks, the area where Washington has long urged the EU's 27 states to apply more pressure on Tehran.

"We are ready to supplement those (U.N. Security Council) sanctions with additional measures," said the final draft of the communique, to be issued at President George W. Bush's last U.S.-EU summit.

"We will continue to work together ... to take steps to ensure Iranian banks cannot abuse the international banking system to support proliferation and terrorism," the draft added.

The U.S. envoy to the EU said Washington was keen for the EU to act as quickly as possible.

"We want to make sure they are going as fast as they can," C. Boyden Gray told reporters in Slovenia ahead of the summit.

Western countries suspect Iran is seeking the ability to make nuclear weapons. Tehran insists its secretive programme is purely aimed at generating energy.

The U.N. Security Council passed a third sanctions resolution against Iran in April and Washington has pressed the EU to deny targeted Iranian banks access to the international financial system.

EU diplomats had said in recent weeks the bloc was ready to go beyond the sanctions, pointing to rigorous applications in the past of travel bans and asset freezes on Iranian officials as proof that the bloc can take a tough line.

They say the EU is preparing an asset and funds freeze on Iran's biggest bank, state-owned Bank Melli, but that it first wants to see how Tehran responds to a new offer of incentives by major powers for it to suspend uranium enrichment.

EU foreign policy chief Javier Solana is due to take that offer to Tehran before the end of the month as part of carrot-and-stick diplomacy known as the "dual-track" strategy.

"We affirm the dual track strategy on this issue which was reinforced by the incentives package and reiterate our belief that a mutually satisfactory, negotiated solution remains open to Iran," the summit draft said.

U.S. Secretary of State Condoleezza Rice said last month the United States would "aggressively" impose more sanctions on Iran as long as it refused to give up nuclear work.